MercoPress. South Atlantic News Agency

Trump’s trade war has cemented Brazil’s place as the soybean superpower, says The Economist

China’s embargo on American beans has created a seller’s market in South America. What would have been a glut from a bumper harvest has become a stockpile.

They say no one wins a trade war. Certainly, there are fewer bigger losers than soybean farmers in the United States. Since May China, by far their biggest customer, has refused to buy a single bushel in retaliation for Donald Trump’s tariffs. The spat is ruining farmers in Illinois; Mr Trump is set to announce a US$10bn agricultural-relief package. It is also raising costs for crushers in China’s Shandong province, who press beans into animal feed and cooking oil. But there has been one big winner: soybean producers in Brazil. The rift between American farmers and their Chinese clients has let Brazil cement its place as the world’s soybean superpower.

It is not the first time Brazil has profited from Trumpian trade conflict. The same thing happened when Mr Trump yanked up tariffs on China in his first term. The proportion of China’s vast market for soybean supplied by Brazil leapt from about half in 2017 to three-quarters in 2018.

The gift horse

Prices drooped after that, but in the aftermath of Russia’s invasion of Ukraine they soared back close to record highs. Brazilian farmers frantically snapped up land and planted soya, pushing shipments to Asia and Europe in 2023 past 100m tons, a record. That investment binge caused “a bit of a hangover”, says Marcela Marini of Rabobank, a Dutch bank that specialises in financing agriculture.

Mr Trump’s second trade war is the perfect antidote. China’s embargo on American beans has created a seller’s market in South America. What would have been a glut from a bumper harvest has become a stockpile. Brazil’s soybean exports are on track to touch 110m tons in 2025. According to Brazilian-government data, that completely offsets the exports lost due to Mr Trump’s 50% tariff on Brazilian goods such as beef and coffee.

It is possible that Brazil’s luck will peter out in late October, when Mr Trump and China’s President Xi Jinping are expected to meet on the sidelines of the APEC summit in South Korea. Mr Trump has promised that “Soybeans will be a major topic of discussion.” If the embargo is lifted, those exporting soybeans from the United States to China will probably still have to pay a high tariff; on American beans it is currently 23%, compared with 3% on those from Brazil. But American soybean prices have been dropping so sharply that they will soon be competitive with South America ones, even with higher tariffs. A deal that even partially reduces China’s tariff would reduce Brazil’s advantage, at least until American prices rose again.

Brazilian farmers appear unfazed. They could hedge against lower prices by forward-selling more of the autumn harvest, but most of them are sitting tight, suggesting they are confident. The timing of their growing season works to their advantage. American grain bins are currently overflowing, especially after a record yield of maize, which is harvested right after soybeans. The gigantic soybean harvest currently being planted in Brazil will be reaped only in January, when the current American crop will have been spent.

The longer-term case for Brazilian soybean boosterism is clear. Having been burnt twice, American farmers and Chinese buyers will probably seek to reduce their mutual dependence. American suppliers are scouting for alternative buyers in west Africa and South-East Asia, as they did in 2018. All the same, replacing Chinese demand is a huge challenge. That is partly why the planted area in the United States has declined 8% since 2017 to 34m hectares (88m acres). Farmers have been switching to maize and sorghum.

Trump-induced shocks are not the only reason for the victory of Brazilian soya, says Daniel Furlan Amaral of Abiove, a soya-trading lobby. Brazil’s soybeans have a higher protein content than those grown in the United States. Its agricultural sector is more productive. At 49m hectares, it is also much bigger. Unlike the Midwest, Brazil’s hinterland offers ample space for further expansion. And with Brazil needing huge quantities of soya oil for its biofuels industry, there is a plenty of domestic demand for soybeans anyway.

The grand ports and railways in the United States are its only remaining edge. The infrastructure boom taking place in Brazil could eventually put paid to that, too.